The drug clozapine (Clozaril) was introduced in 1990 for the treatment of refractory schizophrenia. It was the first of a new class of drugs called "atypical anti-psychotics" and the first anti-psychotic approved in the United States in over 20 years. The initial cost of clozapine ($9,000/year), the chronic and debilitating nature of the schizophrenia, schizophrenic's extensive use of health care services, and their reliance on Medicaid led many Medicaid programs to deny reimbursement or limit access to clozapine. The New York (NF) Medicaid program excluded clozapine from its formulary. The New Jersey (NF) Medicaid program included clozapine on its formulate. The proposed study will use this "natural experiment" to evaluate the effect of the introduction of a clinically important and expensive new drug product. The study will be conducted in three phases using univariate, bivariate, and multivariate statistical methodologies. Phase I will compare and contrast the patterns of use and expenditures associated with antipsychotic and related medications (e.g., lithium and antidepressants) and non-drug health care services for adult non-elderly schizophrenic Medicaid recipients. Phase II will evaluate the effect of the introduction of clozapine in NJ using interrupted time- series, comparison-series and comparison-of-means methodologies. Phase III will use comparisons-of-means and logistic regression techniques to evaluate the patient, provider, and health service utilization characteristics associated with the diffusion of clozapine in NF. Limiting access to new drug products may have intended and unintended consequences. These consequences may be more severe when restrictions are targeted at vulnerable populations such as permanently-disabled, low-income schizophrenics. This research will help identify the potential effects of formulary restrictions on access, utilization and expenditures within the Medicaid environment. The study will also examine how the therapeutic decision-making process, the diffusion of innovations, and the structure of regulations effect the impact of cost containment policies.